Brief case: Flavour of litigation in IMFL

Whether mixing of flavours in Indian Made Foreign Liquour (IMFL) brings out a new product is a question which has shuttled between several authorities and excise tribunals for over a decade. The matter had reached the Supreme Court last week but was still inconclusive. The court set aside the ruling of the tribunal and asked it to reconsider certain issues arising from adding of flavour. The excise officials maintain that there is manufacture when flavours are added to IMFL and duty should be paid along with royalty. In this case, CCE vs United Spirits, the firm was issued a show cause notice in 2000 on the ground that a new product arose by giving flavour to the liquor. The firm produced flavours and sold to other liquor firms but kept the formula secret. It, however, argued that no new product is created when flavor is added. It bought duty-paid essences from various suppliers and simply mixed them by a manual process in a proportion which is kept a top secret by the company. Sometimes it is not even mixed but the flavours are supplied directly to the bottlers. In any case, the amount of flavor mixed is negligible. There is no transformation in the raw materials and every change does not amount to manufacture. The excise tribunal examined the issue twice but still its order was not clear about the transformation process. Therefore the case was remanded to the tribunal.

Transporters must know what they carry

“Transporters of goods are not strangers to the transaction of purchases and sales and totally ignorant about the consignors and consignees. If transactions have been fictitiously carried on in false names and addresses, bogus invoices with fictitious TIN numbers and forged papers by a transporter then he makes himself party to the episode of fictitious transaction with the sole purpose of evasion of tax by undisclosed non-bonafide dealers,” the Allahabad high court stated last week in its judgment in the case, Commissioner of Commercial Tax vs Sri Supreme Freight Carriers. In this case, a truck carrying goods from Ghazibad was intercepted and the papers showed that the details were bogus or forged. The goods were seized but the transporter moved the tribunal arguing that it only carried the cargo and its responsibility ended with it. The tribunal accepted the contention and ordered release of the goods. The authorities moved the high court invoking the provisions of the Uttar Pradesh Vat Act. Allowing the appeal, the judgment said that “by seizure of goods in such cases the transporter is not affected if he is really a transporter. Therefore, instead of being torch bearer of dishonest persons, he should allow the real consignors or consignees to come forward and assign reasons for concealing their real identity. The action of the departmental authorities in such cases to unearth evasion of tax is one of their fundamental duties under the Act.” The high court also rejected the argument that area of Chikambarpur, Ghaziabad, is a "no man's land" according to a government circular. It was part of India where tax regime exists, the judgment said.

The Calcutta high court last week ruled that even if a party to a dispute moves a civil court or other forums, it would not be a bar against arbitration if the contract between them provides for this alternative disputes resolution mechanism under the Arbitration and Conciliation Act. In this case, Srei Equipment Finance Ltd vs Paban Poddar, there was a dispute over payment in a hire purchase agreement. The purchaser moved the civil court. The finance company wanted arbitration and stoppage of the civil proceedings under Section 8(3) of the Act which says that “notwithstanding that an application has been made and pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made." Therefore, a disputing party can invoke arbitration clause even if the civil suit is pending. Any interim order of the civil suit may be looked into by the arbitration court to uphold the principles of comity and avoid any conflict.

“But even then, the arbitration court should not be embarrassed in exercising its authority in any manner whatsoever by the mere pendency of the civil court or like proceedings; or the subsistence of any interlocutory order therein.”

Fear no ground to bar whisky brand

The Delhi high court has rejected the prayer for injunction against a whisky brand on the basis of mere fear that the rival distiller might infringe its brand name in future. In this case, Allied Blenders and Distillers vs Prag Distillers, Allied moved against the opposite party which is a company registered in Maharashtra but has an office in Delhi. Its grievance was that while it owned the well-known brand name “Officers Choice”, Prag has manufactured a competing product in the name of “Smart Choice” with similar trade dress. It might mislead the consumers by passing off the wrong product. Prag on the other hand argued that the Delhi high court had no jurisdiction in the matter as the sale took place in Andhra Pradesh. Allied also has an office in Andhra Pradesh and the suit should be filed there. The argument of Allied is that since Prag has an office in Delhi, the high court has jurisdiction to hear the complaint. It invoked the principle of “imminent threat” of violation, not actual violation. According to it, there was “strong apprehension” that the rival could launch their products in Delhi where it had a distribution network. It contended that the cause of action included “an apprehension of injury” in Delhi. The high court rejected this argument based on fear, not supported by any reasonable ground. A “bald statement” that it apprehended that the rival distiller would launch its product in Delhi cannot be acted upon by the court.

Airline to pay for damage to goods

The National Consumer Commission has directed Malaysian Airlines to pay compensation to Dentply India for delivering goods sent from Los Angeles to New Delhi in a damaged condition and for delay in delivery. When the consignments were opened it was found that they were opened and tampered with and only part of cargo had arrived. The second consignment was also delayed. The Indian company filed a complaint of negligence with the Delhi State Commission. The airlines denied the charges and contended that there was no evidence to prove the allegations. However, the commission rejected the argument and imposed compensation.

On appeal, the national commission upheld the conviction but reduced the rate of damages.